Burt Wagner was just starting the day’s work at a client for his consulting business when his world was turned upside down. Federal agents, some of whom were from the Department of Homeland security descended on Wagner and put him under arrest and refused to tell him why. They seized his laptops and cell phones and asked Wagner’s client if they could search his computer as well. That request resulted with Wagner losing that client, which would end up paling in comparison to what he faced next. The agents placed Wagner in the back of their car and drove him to his house where another search was already on-going.

Wagner counted 22 police and federal agents surrounding his house when he returned. There, they confiscated every computer, every thumb drive, every USB Stick, basically anything and everything that could possibly store digital information.

After being taken to his house, he was brought to the Denver County Jail. Still with no idea what he was being charged with. It is a scene reminiscent of DEA crack downs on medical marijuana dispensaries, only marijuana is legal in Colorado and the DEA has taken a hands-off approach despite federal law. Instead, Wagner was having his life turned upside down for a completely different reason: engaging in the peer-to-peer network we all call Bitcoin.

While at the county jail, Wagner was finally informed what crime he was being charged with. His LocalBitcoins account had grabbed the attention of the authorities, and they were charging him with running an unlicensed money transmitting business.

“I asked the marshals why I was being arrested and they told me that they didn’t have to tell me [. . .] I spent the first night in Denver Country Jail, and then the next day I went to court. That was the first time I learned what the actual charges were. For 24 hours I sat in the Denver County Jail without even knowing why I was arrested.”

After being denied bond, Wagner was transferred to a federal institution, where he was held in solitary confinement, only allowed out of his cell for one hour, once a day. The rationale behind this, according to what Wagner was told, was that the jail held two other prisoners on charges somehow related to bitcoin. The government, according to what Wagner was told by jail officials, apparently has a policy against keeping “Bitcoin prisoners” in the same pod, and since there were only three pods at that particular facility, they had no choice but to keep Wagner in solitary confinement for the duration of his stay. According to court documents, three more cases relating to bitcoin were filed immediately preceding Wagner’s. (For the record, one of those defendants plead guilty and received a $20,000 fine, five years probation and had her property forfeited. Another had his case dismissed and the last still has the majority of his court documents sealed but failed to get his guilty plea reversed.)

This, all because Wagner didn’t fill out the proper paperwork.

After three days and two nights in solitary, a second bond hearing was held. Accompanied by a new lawyer, Wagner made bond and was able to go home and start putting his life back together. Of course, that wasn’t the end of the ordeal. Lawyers had to be paid, meetings re-scheduled and there was the matter of all the property the government had seized. While Wagner was technically innocent until his trial, his stuff was not and they had their own cases against them.

Money, Bitcoin and the electronic equipment that the government had seized from Wagner’s home and workplace was considered “assets of the crime” and was seized and held by law enforcement. It has become common practice across the United States in drug cases, but it is increasingly being used in cases relating to Bitcoin, with or without a drug connection. Suspects are stripped of their cash and property before being found guilty, and oftentimes they never see that money again, even if they themselves are never charged with a crime.

That is because the government brings a case against the actual inanimate objects that law enforcement suspects, or even just claims to suspect, was involved in a crime. This results in sometimes hilarious case names, like “United States v. Forty Barrels and Twenty Kegs of Coca-Cola” and “United States v. 12 200-ft. Reels of Film” but to the people whose property has been seized, it couldn’t be more serious. When Wagner’s case was eventually dropped, so were the charges against his property. Oftentimes, victims of asset forfeiture aren’t charged with a crime and have to sue the government in order to get a venue where they can prove their and their property’s innocence.

Finding serious people outside of law enforcement circles to defend asset forfeiture the way it is practiced today can be difficult. It rose to prominence in the mid-90s after some public debate and Supreme Court Cases. Then, as now, its proponents called it a “powerful tool for law enforcement” and said that it “takes the profit out of crime.” But outside of police chiefs and the heads of three letter departments, there are few politicians and social commentators that will continue to defend civil asset forfeiture. It isn’t appealing to the political ideology of either party, even the tough-on-crime republicans have a find it difficult to defend what it has been used for in recent times.

Wagner was lucky to have a case against him, but he still had to work in the time between he received bail and the time it took for the case to actually be dropped. This meant replacing the computers and electronic equipment required to do his job. Even though the original equipment was eventually returned to him, keeping his job without replacement equipment was out of the question.

Wagner estimates that the total cost to him, including lawyers, damage to his house and property during the raids and the cost of replacing equipment, was somewhere around $250,000. And again, it feels weird stressing this considering the horrible ordeal he experienced but, he was lucky. Wagner’s wife is a former current attorney herself, and while I didn’t ask Wagner about his financial situation, it is clear that they had enough money to at least borrow a war chest to put up a fight. Many more victims of asset forfeiture and over bearing law enforcement tactics in general don’t have those same advantages.

After a bunch of sessions with Wagner’s defense attorney, the prosecuting attorney dropped all charges against Wagner and his property was returned. Likely, this means the government knew it didn’t have a case, or at least not a good enough case to secure a victory. District attorneys like to tout their conviction rate when it comes to election season. Taking unnecessary risks with a well-informed and well-represented defendant isn’t always the most prudent choice.

What is also means is that a possible precedent setting case was avoided by the government. If the case had gone to trial, the government would have had to prove that he was a business operating a money exchange service without a license. This means they would have had to define exactly how much constituted a money transmitting business and that could have hamstrung them in later cases. With the charges being dropped, or had Wagner accepted a plea deal, the government doesn’t have to make that case and they can keep the line one must cross in order to go from “one individual selling something to another” to “unlicensed money transmitter” vague, one might even argue purposefully so.

As long as no one knows where that line sits, the government can continue to arrest local bitcoin traders, threaten them with huge fines and up to five years in prison, and get them to plea to lesser charges, which is again, a tried and tested method of keeping conviction rates high but also doesn’t require them to set legal bar.

Wagner suggest that LocalBitcoin sellers of all volumes register as a money transmitter in their state if they wish to avoid confrontations with law enforcement.

Asset forfeiture also represents another example of the well-known legal phenomenon of legal creep. Legal creep is the tendency that laws designed for very specific criminals, tend to be applied to regular criminals and citizens with increasing regularity. Laws designed to prevent criminal hackers are applied to information advocates. Laws designed to prosecute Mafioso Godfathers are applied to run-of-the-mill drug dealers. Laws passed to protect us from terrorism are instead used to protect giant corporations from animal rights advocates. Laws designed to prevent espionage are applied to whistle-blowers. What new law enforcement tactics are sold as, are rarely how they are used. The same thing applies here.

Asset Forfeiture was originally designed to fight pirates. While on the open-seas, seizing the ship of a smuggler was a difficult thing to handle and pirates were a legitimate threat to “national security.” In the 1990s, the practice was revived and used against drug dealers. Then, as now, the practice was controversial, but it was not without its supporters. Here is how Stefan D. Cassella, then the head of asset forfeiture for the Department of Justice illustrated the practice in an article published in the Federalist Society in 1997

“Finally, forfeiture undeniably provides both a deterrent against crime and as a measure of punishment for the criminal. Many criminals fear the loss of their vacation homes, fancy cars, businesses and bloated bank accounts far more than the prospect of a jail sentence. In fact, in many cases, prosecution and incarceration are not needed to achieve the ends of justice. Not every criminal act must be answered with the slam of the jail cell door. Sometimes, return of the property to the victim and forfeiture of the means by which the crime was committed will suffice to ensure that the community is compensated and protected and the criminal is punished.”

But since that time, those arguments are holding less and less weight. Criminals can be stripped of their “vacation homes, fancy cars, businesses and bloated bank accounts” after being found guilty. Cassella also contends that “prosecution and incarceration are not needed to achieve the ends of justice” which is such an affront on the concept of “innocent until proven guilty” it isn’t worth getting into. The rest of his argument also fails under the scrutiny possible with what we now know thanks to hindsight. We know that funds and items seized during asset forfeiture are more often used to increase the law enforcement department’s budget rather than returned to the victim and increasingly, those funds are being used to terrorize rather than support the community.

We cannot be a free country unless we operate under the principal that everyone is innocent until proven guilty. Innocent people don’t have their possessions stripped from them and then forced to choose between letting those possessions go or risk going destitute trying to get it back.

Wagner may never be the same again, financially or mentally. While he seems like he has handled the experience far better than could be expected, it was still a harrowing ordeal and spending time in solitary confinement, even if “only” for a few days, can have an affect on even the most mentally stable people.

These kind of actions from the government are likely to continue unless someone stands up against them. Wagner proved that if you take them on, you can win. It is just very expensive. If you would like to help Wagner with his legal fees and the cost of replacing items damaged in the raid, consider donating here.

[Image: Oregon DOT

  • Mr. Demartino, Thank you for taking the time to speak with my husband and to write an article about civil forfeiture. One correction. I am an active attorney; I am corporate counsel for our corporation. I mention it only because Special Agent Arran McWhirter lied and told people I was no longer an attorney. The federal government has to employ a taint team when it raids an attorney's office. The feds were trying to avoid bringing in a taint team and pointedly ignored that fact that I was an attorney. Thanks again, Jean Wagner